Analistas 09/05/2016

Britain: don’t leave the European Union

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Let me start with the economics. There are a number of estimates of Brexit’s economic impact out there, but I prefer a quick-and-dirty calculation that I can easily understand - and one that’s not out of line with the other, more detailed results.

So here it goes: Before it joined the European Union, Britain did only about a third of its trade with Europe. Now it’s about half, and it’s unlikely that much of that represents trade diversion. 

So unless Britain can negotiate something that looks like Norway’s deal, which would basically mean accepting European Union policies in which it would no longer have a voice, we might expect Brexit to reduce the share of trade in Britain’s gross domestic product from about 30% to about 25%.

What’s that worth? I’ve previously used the elegant Eaton-Kortum trade analysis as a benchmark for assessing globalization (read more about it here: nyti.ms/1fFRBvR). Eaton-Kortum suggests that Brexit would reduce British real income by 1,7%. Call it 2%, with the understanding that there are big error margins around all of this.

Should we, as some commentators argue, multiply this by two or more to reflect dynamic gains? In general, I’m not fond of this practice - it smacks way too much of “101 boosterism,” or deriving a policy argument from basic economic models, then invoking factors not in the models to make the argument seem much stronger than it is. Why tout the dynamic effects of trade as opposed to lots of other things?

But 2% is a lot. It’s extremely hard to come up with policies that will make a country 2% richer in perpetuity. You’d have to have very good reasons to leave the European Union to be willing to make that big a sacrifice.

What about income distribution, which is a big issue in many trade agreements? In this instance, it’s pretty much irrelevant: The European Union is, on average, comparable to Britain with regard to wages and per capita income.

¿So what is this all about? In a word, governance. The case for Brexit is, basically, the argument that membership in the European Union ties Britain to a very badly run institution. And that case is, unfortunately, reasonably strong. Eurocrats have a lot to answer for: the huge mistake of the euro; the reckless and feckless promotion of austerity; the hapless response to the refugee crisis; and, in general, the failure to take seriously the strains of internal migration. Europe has also been largely useless in dealing with the destruction of democracy in Hungary.

But to point to the European Union’s failings as a reason to leave is, as the economist George Stigler used to say, giving the prize in a singing contest to the second contestant because you’ve heard the first. If Britain leaves the union and escapes the grip of the Eurocrats, who will it be empowering instead?

You sometimes hear people saying that the attitudes and character of the pro-Brexit forces are not a valid argument for staying in. But that’s wrong: Asking who would call the shots afterward, and who would be strengthened, are entirely relevant questions.

And that’s where Mr. Johnson’s recent tirade against President Obama in The Sun newspaper was so wonderfully clarifying. It tells us who the anti-union wing of the Conservatives really are; it tells us not just that they are pretty close to the U.K. Independence Party, but that, intellectually and emotionally, they live in the same fever swamps as the American right. And they would, all too probably, take on a strong, even dominant role in British politics post-Brexit.

So Britain, don’t do this. You would pay a fairly large economic price, and in return you would get governance so bad that it would make the European Union look good.

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